Canada dollar hits 4-month low in "new chapter" of Europe crisis

TORONTO (Reuters) - Canada's dollar hit a four-month low against the U.S. dollar on Thursday as investors were gripped by worries about European banks and the prospect of Greece leaving the euro zone

Uninspiring U.S. and Canadian economic data added to the gloom.

Fears about Spain's banks resurfaced after a newspaper report that customers at Bankia (BKIA.MC), the partly nationalized lender, had withdrawn more than 1 billion euros from their accounts in the past week. The Spanish government said there had been no exit of deposits.

The report followed suggestions that customers of Greek banks were moving funds in expectation of the country's exit from the euro, adding to broader anxiety about the region's debt crisis.

"To me, at the top of the list (of concerns) is banking ... particularly bank runs and the signs of bank runs, that's a new chapter that's being opened in Europe and that is behind the considerably elevated worries," said Adam Button, currency analyst at ForexLive in Montreal.

The Canadian dollar ended the North American session at C$1.0191 versus the U.S. dollar, or 98.13 U.S. cents, down from Wednesday's finish at C$1.0127 versus the U.S. dollar, or 98.75 U.S. cents. It was the currency's fourth straight day of losses as hit its weakest level since January 16.

Button said the Canadian dollar could easily slip back to the C$1.04 area in the next month, particularly if the Bank of Canada begins to indicate that it is less eager to hike interest rates.

"The Bank of Canada will back down from its hawkish rhetoric. We're seeing increasing signs of slowing growth in the U.S., in China and, of course, in Europe," he said.

"Moreover, commodity prices are indicating a slowdown in worldwide growth and that's the No. 1 concern for the Bank of Canada."

The focus on global risks takes some of the pressure off domestic data in driving direction for the Bank of Canada, with investors cutting bets for a rate hike later this year.

Still, markets will be paying attention to Canadian inflation data for April on Friday. According to a Reuters poll, Canadian consumer prices likely remained subdued, suggesting price pressures are the least of the Bank of Canada's worries.

"Negative risk-appetite in the market as concerns over Europe and Greece continue to be forefront in market sights here," said Matt Perrier, director of foreign exchange sales at BMO Capital Markets.

A round of mostly disappointing North American economic data also weighed on sentiment.

A gauge of future U.S. economic activity fell in April for the first time in seven months and the Philadelphia Fed business conditions index hit its lowest since September.

In addition, the weekly U.S. claims for jobless benefits remained at levels that indicated the pace of hiring remains lackluster, increasing worries about the domestic recovery.

In Canada, while wholesale trade figures came in slightly better than expected, other data showed foreign investors reduced their holdings of Canadian securities for the second time in three months in March.

Canadian bond prices rallied across the curve, outperforming U.S. Treasuries in the rate-sensitive short end of the curve but lagging at the long end. The two-year government bond jumped 14 Canadian cents to yield 1.234 percent, while Canada's 10-year bond gained 39 Canadian cents to yield 1.881 percent.